"IT'S WORKING! IT'S WOOORKING!"

WORRRRKINNNNGGG
No but seriously, the 8-bit textures work perfectly (well, the palette is still a little bit weird, but we can tweak that). We can now successfully load up 8-bit textures and dump them to disk, or bind them to the GPU. Thank you so much de_lof (and the rest of the SILENT HILL 3 Modding community!!!).
It didn't work initially because it turns out I had an entire section of code inside the for loop when it should have been outside of it...

I spent a full day debugging this...